Mortgage company Housing Finance is planning a bond issue by the end of the year to fund its property development subsidiary, Kenya Building Society (KBS).
The home loans provider revived KBS last year after a 13-year dormancy to deepen its involvement in construction as a strategy for earning more revenue across the real estate development chain.
“The company (HF’s) managing director said in a statement that the firm might seek additional funding in the fourth quarter of the year to further capitalise Kenya Building Society to enable the society leverage on the new opportunities emerging in the construction industry,” says a research note released by Old Mutual Securities.
The mortgage provider has, however, not yet worked out details regarding the amount and rate of return for the proposed bond.
“No decision yet,” said managing director Frank Ireri when the Business Daily contacted him.
Should Housing Finance management forge ahead with the bond plan, it will make it the second issue in two years, after it secured Sh2.9 billion through a bond offer in October last year.
Last year’s bond was the second tranche in a Sh10 billion bond programme that began in September 2010.
Analysts said that issuing a bond would require a fine balancing act for advisors to the transaction due to the prevailing unpredictability on the direction of interest rates.
Francis Mwangi, a research analyst at Standard Investment Bank, said that ideally this would be the best time to launch a bond due to the low interest rates.
The 91-Day Treasury Bill rate, which is mainly used as a peg for corporate bond issues, dropped to 5.11 per cent in last week’s auction.
It is, however, unpredictable whether the current low rates will be sustainable due to the government’s ballooning Budget deficit, which has necessitated additional borrowing and is expected to push rates up.
The Treasury has already said it expects to borrow locally and internationally to bridge a Sh329.7 billion funding gap, with Sh106.7 billion expected to come from the domestic market while the Sh223 billion balance is to be borrowed from foreign lenders.
Market expectations that rates will rise due to the anticipated heavy borrowing could determine how the bond is packaged.
“At the end of the day it comes down to whether it will be fixed or floating,” said Mr Mwangi.
Rising rates will favour a floating rate over a fixed rate bond.
Previously Housing Finance has offered both fixed and floating rates.
Last year’s issue had a 13 per cent fixed rate.
The money is to be pumped into KBS which is already putting up 162 houses in Nairobi’s Komarock Estate.